4 Financial Goals to Have in 2020
Ah, as the new year is approaching, motivation is running high to start a new slate in the new year. What I like to do is setting my financial goals in December because it allows me a clear direction for the next year without the pressure of starting a “New Year resolution” since the habit feels like a roll-over from the previous year, if that makes sense.
Anyway, by no means do I consider myself a financial expert, but here are 4 financial goals to have in 2020. Why 4? Because 3 is too little and 5 is too many.
- Curb your impulse purchases
- Track your expenses
- Pay yourself first
- Build an emergency fund
- Start an Retirement Account
- Start an investment account
- Pay off at least 1 debt
Curb your impulse purchases
I know a lot of people who seems to buy things impulsively, whether it’s that second cup of Starbucks coffee, or a clothing article because it’s on sale. The rationales involved are usually somewhere along the line “I have had a long day today, I deserve this” or “I have not purchase anything for a while”.
I am not saying that you should not get a second cup of coffee if you do need it (we all had those days), but rather to differentiate your want and need appropriately. Any small purchases if you are not disciplined will add up over time, when the money spent could have been invested and generate income.
Having a long day or not having bought anything for a while do not justify impulse purchases. Spend your money wisely.
Track your Expenses
For my December 2019 challenge, I decided to start tracking my expenses and spendings again to have a clearer picture on my financial situation. I recommend you to do the same thing for the year 2020.
When you have a clear picture of what your monthly expenses is like, you can see where you can save money or allocate the spending to a better alternative.
There are many apps on iOS and Android that you can use to do this in the app store. Personally, I use the Spendee app because it is simple and easy to use. The user interface also reduces a lot of passive barrier for me to maintain the habit of tracking.
Pay Yourself First
When you pay yourself first, it is not the same as using the money to buy or spend it on yourself first. It simply means when you get your pay checks or earnings for the month, you set aside a portion of it to be invested first before you pay off other things.
There are many ways for you to set aside a portion of your paychecks automatically every month (contact your HR Dept. or your bank). Aim to set aside 30% of your paychecks every month in a separate account with the remaining 70% to be used for everything else. Once you automate the process and forget about the 30%, you will be surprised how you can adjust to just using the 70% for your daily expenses.
This is where tracking your expenses come into play. Depending on how much you get paid monthly, you have to know your fixed expenses (phone bills, mortgage, electricity, etc; party fund does not count) so you have a clear picture how much you can set aside. Do not worry if you can’t set aside 30% as long as you are setting aside money to be invested and commit to increasing the percentage set aside in the following months. The plan is to make this sustainable and long term.
Once you have set aside your pay every month, start making a conscious decision in allocating the money into the following accounts:
- 3 – 6 months of emergency fund
- Retirement Account
- Investment Account
Emergency Fund
In order to make this habit sustainable, you need an emergency fund. Emergency fund will act as a buffer when unexpected emergencies come up that require money. The keyword being emergency, going out for the night with friends that came from out of town is not considered an emergency.
Commit 1/3 of the pay you set aside every month into the emergency fund. The point is by having an emergency fund, you continuously set aside money every month because when these emergencies come, you can continue setting aside 30% of your pay.
Try to aim for 3 – 6 months of fixed expenses for the emergency fund and once you have filled up the fund with at least 3 months of fixed expenses, the leftover can be put into the retirement and investment accounts.
Retirement Account
Put another 1/3 of your set-aside-money into your retirement account. If you live in America, then Roth IRA, traditional IRA or anything your company offers will work. Even better if your company do a saving matching.
Investment Account
Finally, with your last 1/3, invest it. Start a low cost safe investment. Invest in bonds, invest in low cost index funds, invest in CDs as long as you invest it. The point is to get time on your side and compounding is the way to go.
Pay Off At Least 1 Debt
Aim and commit to pay off at least 1 debt. If you have more than 1 debt, start with the one with the highest interest rate or the one with least principal if the interest rates are equal.
Anyway, if you have your own personal financial goals that are not similar to this post, I will be very interested in hearing about them. Drop me a message or an email and let me know.
